The Securities and Exchange Commission reprimanded the Philadelphia Stock Exchange for failing to identify violations by its specialists who broke trading or order-taking rules.

The SEC issued a settled cease and desist order against the exchange for failing to adequately police its specialists between April 1999 and January 2002.

The regulator said the exchange had several deficiencies in its surveillance programs to assure compliance with its own rules and federal securities laws in both its options and equities markets.

It failed to develop programs to detect violations despite promising to make improvements after the SEC had previously raised the matter in 2000 and inadequately failed to detect equities trading violations relating to short sales, front-running, marking the close, and wash trades.

The exchange has undertaken to retain a third party auditor in 2006 and 2008 to conduct a comprehensive audit of its surveillance, examination, investigation, and disciplinary programs and to implement annual training program for all floor members and certain regulatory staff.

Linda Chatman Thomsen, director of the SEC's division of enforcement, said: "It is essential that self-regulatory organizations vigorously enforce their own rules and the federal securities laws."

The exchange consented to the issuance of the order without admitting or denying any of the findings.

Meyer Frucher, chairman and chief executive of the exchange, said: "We believe this settlement reflects the recognition of our serious commitment to the maintenance of a robust and effective regulatory program and our immediate and significant response to regulatory issues discovered by both Philadelphia and the SEC. This matter is finally behind us and we will continue efforts to operate as a sophisticated, robust, regulatory compliant and transparent market center."